CSCO: Services, Soft Networking, Margins in Focus at Analyst Day

By Tiernan Ray

Cisco Systems (CSCO) will host its analyst day event this Friday, December 7th, in New York, with a Webcast starting at 8 am, Eastern time.

That means today it was incumbent for the Street to offer a heads up on what to look for or what to expect from the event.

Stifel Nicolaus’s Sanjiv Wadhwani, who maintains a Buy rating on the stock and a $23 price target, writes today that much of CEO John Chambers‘s remarks will discuss a focus on greater services business, as opposed to product sales:

A major push is to move the business model to more services and software (CEO John Chambers in an interview with Network World said that the company is going to move on multiple fronts with software and Cisco’s goal is to double software revenues over the next five years). We expect underlying details on how the company plans on getting there along with a road map.

He thinks Cisco will try to convince investors it hasn’t lost the edge in switching:

We believe that numerous investors feel that Cisco has lost its technology edge with missteps in L4-7 and perhaps entering the SDN party late. Consequently, we expect Cisco to focus on areas such as SDN, mobility, service provider WiFi and video as part of a technology panel. The goal is to show that the company still has the ability to innovate.

Although Cisco has a “number of challenges,” he writes, nevertheless “Cisco is benefitting from the accretion of the NDS acquisition as well as the Cariden Software Orchestration acquisition, the Meraki WiFi deal, and the Cloupia network software deal. In fact, Cisco has executed 10 announced deals over the past year.”

Henderson thinks Cisco will try and put a positive spin on the threat to conventional networking from what’s known as “soft switches,” or “software-defined networking,” and the technology called “Open Flow”:

In our opinion, Software Defined Networking is a challenge to Cisco and Juniper. We see it as a threat to Cisco’s “end-to-end” network strategy, a threat to the dominance of the best efforts internet protocols, and a threat to branded high margin business models. Cisco is likely to take a different stance arguing they are best positioned to offer programmability, open SDKs, and flow based routing.

Another question is whether margins can hold up in the coming year, and he thinks probably they can, given restructuring actions and the positive contribution of this year’s acquisition of NDS.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.